Hofstede's Cultural Dimensions: Power Distance
Hofstede's Cultural Dimensions: Power Distance
Hofstede's Cultural Dimensions: Power Distance
Power Distance
This dimension expresses the degree to which the less powerful members of a society
accept and expect that power is distributed unequally: beliefs about the appropriate
distribution of power in society. The fundamental issue here is how a society handles
inequalities among people. People in societies exhibiting a large degree of Power
Distance accept a hierarchical order in which everybody has a place and which needs no
further justification. In societies with low Power Distance, people strive to equalise the
distribution of power and demand justification for inequalities of power. China and Saudi
Arabia are countries with a high Power Distance index.
Individualism
The Individualism/Collectivism dimension is about the relative importance of individual
versus group interests. The high side of this dimension, called individualism, can be
defined as a preference for a loosely-knit social framework in which individuals are
expected to take care of only themselves and their immediate families. Its opposite,
collectivism, represents a preference for a tightly-knit framework in society in which
individuals can expect their relatives or members of a particular in-group to look after
them in exchange for unquestioning loyalty. A society’s position on this dimension is
reflected in whether people’s self-image is defined in terms of “I” or “we.” The USA is
considered as one of the most individualistic countries in the world.
Masculinity
The Masculinity/Femininity dimension is about what values are considered more
important in a society. The Masculine side of this dimension represents a preference in
society for achievement, heroism, assertiveness and material rewards for success. Society
at large is more competitive. Its opposite, femininity, stands for a preference for
cooperation, modesty, caring for the weak and quality of life. Society at large is more
consensus-oriented. In the business context Masculinity versus Femininity is sometimes
also related to as “tough versus tender” cultures. Japan is considered to be a very
masculine country, whereas Scandinavian countries such as Norway and Sweden are
considered highly feminine.
Uncertainty Avoidance
The Uncertainty Avoidance dimension expresses the degree to which the members of a
society feel uncomfortable with uncertainty and ambiguity. In addition its impact on rule
making is taken into account. The fundamental issue here is how a society deals with the
fact that the future can never be known: should we try to control the future or just let it
happen? Countries exhibiting a high Uncertainty Avoidance maintain rigid codes of belief
and behaviour and are intolerant of unorthodox behaviour and ideas. These countries
often need many rules to constrain uncertainty. Countries with a low Uncertainty
Avoidance index maintain a more relaxed attitude in which practice counts more than
principles, tolerance for ambiguity is accepted and the need for rules to constrain
uncertainty is minimal. South American countries such as Chile, Peru and Argentina are
highly uncertainty avoiding countries.
Time Orientation
Every society has to maintain some links with its own past while dealing with the
challenges of the present and the future. Societies prioritize these two existential goals
differently. Countries that score low on this dimension, for example, prefer to maintain
time-honoured traditions and norms while viewing societal change with suspicion. They
are past and present oriented and value traditions and social obligations. Countries
with cultures that scores high on this dimension on the other hand take a more pragmatic
approach: they are future oriented and encourage thrift and efforts in modern education as
a way to prepare for the future. Asian countries such as China and Japan are known for
their long term orientation. Morocco is a short term oriented country.
Indulgence
The Indulgence dimension is a relatively new dimension to the model. This dimension is
defined as the extent to which people try to control their desires and impulses, based on
the way they were raised. Relatively weak control is called Indulgence and relatively
strong control is called Restraint. Cultures can, therefore, be described as Indulgent or
Restrained. Indulgence stands for a society that allows relatively free gratification of
basic and natural human drives related to enjoying life and having fun. Restraint stands
for a society that suppresses gratification of needs and regulates it by means of strict
social norms.
Power Distance: This dimension expresses the degree to which the less
powerful members of a society accept and expect that power is distributed
unequally.
Individualism vs. Collectivism: This dimension focuses on the questions about
whether people prefer a close knit network of people or prefer to be left alone to
fend for themselves.
Masculinity vs. Femininity: Masculinity represents a preference in society for
achievement, heroism, assertiveness and material reward for success. Its
opposite, femininity, stands for a preference for cooperation, modesty, caring for
the weak and quality of life.
Uncertainty Avoidance: This dimension expresses the degree to which the
member of a society feels uncomfortable with uncertainty and ambiguity.
Long-term vs. Short-term Orientation: Long-term orientation dimension can be
interpreted as dealing with society's search for virtue. Societies with a short-term
orientation generally have a strong concern with establishing the absolute truth.
Power Distance: This dimension expresses the degree to which the less
powerful members of a society accept and expect that power is distributed
unequally.
Individualism vs. Collectivism: This dimension focuses on the questions about
whether people prefer a close knit network of people or prefer to be left alone to
fend for themselves.
Masculinity vs. Femininity: Masculinity represents a preference in society for
achievement, heroism, assertiveness and material reward for success. Its
opposite, femininity, stands for a preference for cooperation, modesty, caring for
the weak and quality of life.
Uncertainty Avoidance: This dimension expresses the degree to which the
member of a society feels uncomfortable with uncertainty and ambiguity.
Long-term vs. Short-term Orientation: Long-term orientation dimension can be
interpreted as dealing with society's search for virtue. Societies with a short-term
orientation generally have a strong concern with establishing the absolute truth.
It's important to remember that there are differences between talking and
communicating. When we talk, we tend to erect barriers that hinder our ability
to communicate. Some of the communication barriers during conversation
include:
Perceptual Barriers
Perceptual barriers are internal. If you go into a situation thinking that the
person you are talking to isn't going to understand or be interested in what you
have to say, you may end up subconsciously sabotaging your effort to make
your point. You will employ language that is sarcastic, dismissive, or even
obtuse, thereby alienating your conversational partner.
Cultural Barriers
Cultural barriers are a result of living in an ever shrinking world. Different
cultures, whether they be a societal culture of a race or simply the work
culture of a company, can hinder developed communication if two different
cultures clash. In these cases, it is important to find a common ground to work
from. In work situations, identifying a problem and coming up with a highly
efficient way to solve it can quickly topple any cultural or institutional barriers.
Quite simply, people like results
Conclusion
Communication is not a one-way street. To have others open up to you, you
must be open yourself. By overcoming the seven barriers to communication,
you can ensure that the statement you are making is not just heard, but also
understood, by the person you are speaking with. In this way, you can be
confident that your point has been expressed.
Comparison between Japanese and American
Management Systems!
(i) Comparison of Managers:
A study conducted by Haire Ghisell, and Porter show that
Japanese managers are quite different from other managers
generally and from American managers specifically.
ADVERTISEMENTS:
(II) Comparison of Workers:
Japanese workers have greater trust and acceptance of
management decisions concerning application of practices
and policies than do American workers. Japanese workers
value working at high levels of capacity and assisting other
workers to a greater extent than do American workers, and
that this difference is increasing over time.
High level of work effort and commitment, organizational
involvement and cooperation, acceptance, and trust in
management policies and practices — all are the norm of
Japanese workers; they are not for American workers.
(iii) Comparison of Societies:
ADVERTISEMENTS:
ADVERTISEMENTS:
Japanese system of human resource management reflects these principles and provides a more
Notes systematic appreciation of the connections between the various factors involved; strategies to
internalise the labour market are based on the environment factors of relative stability including an
ageing workforce as well as technological innovation. The main features of the Japanese Human
Resource management are community orientation, seniority-based promotion and salary system,
class egalitarianism groupism, information sharing and employee participation, employment security
and flexible job behaviour. Factors that are transferable to overseas subsidiaries are: community
orientation, class egalitarianism, job security, and worker participation. Factors that are difficult to
transfer are: group-orientation behaviour, wage and promotion seniority system. Japanese are more
anxiety-prone and have a high job stress. Employees place high premium on job security, career
planning, and health insurance and retirement beliefs. They are more entrepreneurial, innovative
and exhibit less emotional resistance to change. Japan has a high muscularity index and so it places a
great importance on earnings, recognitions and challenges. They have a good orientation towards
human nature. They focus on self-control. They follow an indirect style of communication and
agreements between the members tend to be spoken rather than written. Japanese methods and
principles of people management focus on gaining mutual commitment of people and the
corporation. The corporation is seen as a family that looks after its own. Motivation should be seen
within the whole context of mutual loyalty and commitment. The way performance is both
conceived and rewarded in western organisations by performancerelated rewards, payment by
seniority in Japanese organisations is valued as a way of rewarding commitment to the corporation.
Japanese managers are highly pragmatic, lay strong emphasis on growth and size. They value
competence, achievement, dedication and loyalty.
It is difficult to compare industrial relations systems and behaviour across national boundaries; a
labour relations concept may change considerably when translated from one industrial relations
context to another. The concept of collective bargaining in the United States means negotiations
between a labour union local and management; in Sweden and Germany it refers to negotiations
between an employers’ organisation and a trade union at the industry level. Cross-national
differences also emerge as to the objectives of the collective bargaining process and the
enforceability of collective agreements. Human resource management practices result in creation of
relations among employees, management and trade unions. Such relations are called industrial
relations. Similarly the HRM policies and practices of international business with regard to different
country nationals (PCN, TCN and HCN) result in relations among management of multinational
corporations and other kind of employees. Such relations are called international industrial relations.
These relations play a crucial role in strategy formulation and implementation in international
business either by enabling or disabling MNCs in the process of doing business in various countries.
10.1 Trade Unions and International Industrial Relations Before moving to trade unions and
International industrial relations, let us first the basics of industrial relations. ILO defines industrial
relations, “Industrial relations deal with either the relationship between the state and employers’
and workers’ organisations or the relation between the occupational organisations themselves”.
International industrial relations deals with the complex relationships among employers employing
foreign national, employees of different nationalities, home and host country governments and
trade unions of the organisations operating in various countries and their national and international
federations. 10.1.1 Factors that Influence Industrial Relations Factors influencing the industrial
relations are as follows: (i) Institutional factors: Home and host country government policy, labour
legislation, voluntary courts, collective agreement, employee courts, employers’ federations, social
institutions like community, caste, creed, system of power status etc. in various countries form
Institutional factors. (ii) Economic factors: Include economic organisation, like capitalist, communist,
mixed etc. , the structure of labour force, demand for and supply of labour force etc. (iii)
Technological factors: Include mechanisation, automation, rationalisation, computerisation,
information technology etc. (iv) Social and Cultural factors: Include population, religion, customs and
traditions of people, ethnic groups, cultures of various groups of culture etc. (v) Political factors:
Include political system in the country, political parties and their ideologies, their growth,
involvement in trade unions etc. (vi) Governmental factors: Include host and home country
governmental policies like globalisation policies, industrial policy, economic policy, labour policy,
export policy, migration and immigration policies etc. Example: Globalisation policies in countries
like Bulgaria brought dramatic changes in MNCs in that country. Early involvement of Trade Unions is
advised when MNCs plan to take over earlier Public enterprises where there is a tradition of trade
unions. 10.1.2 Actors of Industrial Relations Industrial societies necessarily create industrial relations
defined as the complex of interrelations among workers, management and the government. Three
major participants or factors of industrial relations, thus, are workers and their organisations,
management and the government. 1. Workers and their organisations: The total worker plays an
important role in industrial relations. The total worker includes working age, educational and family
background, psychological factors, social background, culture, skills, attitude towards others’ work
etc. Workers’ organisations, prominently known as trade unions, play major role in industrial
relations. The main purpose of trade unions is to protect the workers’ economic interests through
collective bargaining and by bringing pressure on the management through economic and political
tactics. Trade union factors include leadership, finances, activities etc
2. Employers and their organisations: Employers employ expatriates, pay salaries and various Notes
allowances, provide a variety of benefits, regulate the working relations through various policies,
rules and regulations and by enforcing labour laws of the country. They expect workers to follow
rules and regulations, contribute their resources to the maximum to achieve organisational goals
and mission. The difference between demands of the workers and employers results in industrial
conflict. Normally employers’ power is higher than that of their workers. But their power is
undermined when compared to that of trade unions. Employers form their organisations to equate
(or excel) their bargaining power with that of the trade unions. These organisations protect the
interest of the employer by pressurising the trade union and the government. 3. Government:
Government plays a balancing role as a custodian of the nation. Government exerts its influence on
industrial relations through its labour policy, industrial relations policy, implementing labour laws,
the process of conciliation adjudication by playing the role of a mediator etc. It tries to regulate the
activities and behaviour of both employees’ and employers’ organisations, individual and group
organisations. Definition of Trade Union A trade union is a continuing long term association of
employees, formed and maintained for the specific purpose of advancing and protecting the
interests of the members in their working relationship. Some argue that it also covers employers’
organisations and friendly societies. 10.1.3 Factors for Differences in Trade Unions Structure Several
factors are identified that may underlie the historical differences in the structure of the trade unions
in various countries: 1. The mode of technology and industrial organisation at critical stages of union
development; 2. Methods of union regulation by government; 3. Ideological divisions within the
trade union movement; 4. The influence of religious organisations on trade union development; and
5. Managerial strategies for labour relations in large corporations. Table 10.1: Trade Union Structure
in Western Societies Australia general, craft, industrial, white-collar Belgium industrial, professional,
religious, public sector Canada industrial, craft, conglomerate Denmark general, craft, white-collar
Finland industrial, white-collar, professional and technical Germany industrial, white-collar Great
Britain general, craft, industrial, white-collar, public sector Japan enterprise The Netherlands
religious, conglomerate, white-collar Norway industrial, craft Sweden industrial, craft, white-collar
and professional Switzerland industrial, craft, religious, white-collar United States Industrial, craft,
conglomerate, white-collar Source: Industrial Relations: Origin and Development (1986) p. 79 182
LOVELY PROFESSIONAL UNIVERSITY Global HRM Notes Union structures differ considerably among
Western countries. These include industrial unions, which represent all grades of employees in an
industry; craft unions, which are based on skilled occupational grouping across industries;
conglomerate unions, which represent members in more than one industry; and general unions,
which are open to almost all employees in a given country. Enterprise unions are common in Asia-
Pacific nations, although there are national variations in their functions, and in the proportion of
enterprise unions to total unions. The lack of familiarity of multinational managers with local
industrial and political conditions has sometimes needlessly worsened a conflict that a local firm
would have been likely to resolve. Multinationals are recognising this shortcoming and admitting
that industrial relations policies must be flexible enough to adapt to local requirements. ! Caution
Trade unions limit the strategic choices of multinationals in three ways: 1. By influencing wage levels
to the extent that cost structures may become uncompetitive. 2. By constraining the ability of
multinationals to vary employment levels at will. 3. By hindering or preventing global integration of
the operations of multinationals. Let us explore in detail, how trade union limits on MNC’s strategic
choices: 1. Influencing Wage Levels: Although the importance of labour costs relative to other costs
is decreasing, labour costs still play an important part in determining cost competitiveness in most
industries. The influence of unions on wage levels is important. Multinationals that fail to
successfully manage their wage levels will suffer labour cost disadvantages that may narrow their
strategic options. 2. Constraining the Ability of MNCs to Vary Employment Levels at Will: For many
MNCs operating in Western Europe, Japan, and Australia, the inability to vary employment levels at
will is more serious problem than wage levels. Many countries now have legislation that limits
considerably the ability of firms to carry out plant closure, redundancy, or layoff programmes unless
it can be shown that structural conditions make these employment losses unavoidable. Plant closure
or redundancy legislation in many countries also frequently specifies that firms must compensate
redundant employees through specified formulae such as two weeks’ pay for each year of service. In
many countries, payments for involuntary terminations are rather substantial, especially in
comparison to those in the United States. Unions influence this process in following two ways: (a) By
lobbying their own national governments to introduce redundancy legislation, (b) By encouraging
regulation of MNCs by international organisations such as the Organisation for Economic
Cooperation and Development (OECD). Multinational managers who do not take these restrictions
into account in their strategic planning may well find their options severely limited. 3. Preventing
Global Integration of MNC Operations: MNCs make a conscious decision not to integrate and
rationalise their operations to the most efficient degree because to do so could cause industrial and
political problems. LOVELY PROFESSIONAL UNIVERSITY 183 Unit 10: International Industrial Relations
Notes Example: General Motors is an example of this “sub-optimising of integration.” GM was
alleged in the early 1980s to have undertaken substantial investments in Germany (matching its new
investments in Austria and Spain) at the demand of the German metalworkers’ union (one of the
largest industrial unions in the Western world) in order to foster good industrial relations in
Germany. Union influence delays the rationalisation and integration of MNCs’ manufacturing
networks and increases the cost of such adjustments. But in automobiles industries at least, it
permanently reduces the efficiency of the integrated MNC network. Therefore, treating industrial
relations as incidental and relegating them to the specialists in various countries, is inappropriate. In
the same way as government policies need to be integrated into strategic choices, so do industrial
relations.
10.2 Key Issues in International Industrial Relations Because national differences in economic,
political, and legal systems, there are different industrial relations systems across countries, so,
MNCs delegate the management of industrial relations to their foreign subsidiaries. A policy of
decentralisation does not keep corporate headquarters from exercising some coordination over
Industrial relations strategy. Corporate headquarters will become involved in or oversee labour
agreements made by foreign subsidiaries because these agreements may affect the international
plans of the firm and/or create precedents for negotiations in other countries. Example: The U.S.
firms are less to recognise trade unions, preferred not to join employers associations, had more
highly developed and specialised personnel departments at plant level, and tended to pay higher
wages and offer more generous employee fringe benefits than local firms. 184 LOVELY
PROFESSIONAL UNIVERSITY Global HRM Notes Multinational headquarters involvement in industrial
relations is influenced by several factors as detailed below: 1. The Degree of Inter-subsidiary
Production Integration: A high degree of integration was found to be the most important factor
leading to the centralisation of the Industrial relations function within the firms. Industrial relations
throughout a system become of direct importance to corporate headquarters when transnational
sourcing patterns have been developed; that is, when a subsidiary in one country relies on another
foreign subsidiary as a source of components or as a user of its output. A coordinated industrial
relations policy is one of the key factors in a successful global production strategy. 2. Nationality of
Ownership of the Subsidiary: There are differences between European and U.S. firms in terms of
headquarters involvement in industrial relations. U.S. firms tend to exercise greater centralised
control over industrial relations than do British or other European firms. U.S. firms tend to place
greater emphasis on formal management controls and a close reporting system to ensure that
planning targets are met. The foreign-owned multinationals in Britain prefer single-employer
bargaining and are more likely to assert managerial prerogative on matters of labour utilisation. U.S.
– owned subsidiaries to be much more centralised in industrial relations decision-making than
British-owned. This is due to the more integrated nature of U.S. firms and the more ethnocentric
managerial style of U.S. firms. 3. International Human Resource Management Approach: The various
international human resource management approaches utilised by multinationals have implications
for international labour relations. An ethnocentric predisposition is more likely to be associated with
various forms of industrial relations conflict. A geocentric firm will bear more influence on host-
country industrial relations systems, due to their greater propensity to participate in local events. 4.
MNC Prior Experience in Industrial Relations: European firms have tended to deal with labour unions
at industry level rather than at firm level. The opposite is more typical for U.S. firms. In the United
States, employer associations have not played a key role in industrial relations system and firm-
based industrial relations policies are the norm. 5. Subsidiary Characteristics: A number of subsidiary
characteristics to be relevant to centralisation of industrial relations: (a) Subsidiaries that are formed
through acquisition of well established indigenous firms tend to be given much more autonomy over
industrial relations than are greenfield sites set up by a multinational firm. (b) Greater intervention
would be expected when the subsidiary is of key strategic importance to the firm and the subsidiary
is young. (c) Where the parent firm is a significant source of operation or investment funds for the
subsidiary, that is, where the subsidiary is more dependent on headquarters for resources, there will
tend to be increased corporate involvement in industrial relations and human resource
management. (d) Poor subsidiary performance tends to be accompanied by increased corporate
involvement in industrial relations. Where poor performance is due to industrial relations problems,
multinationals tend to attempt to introduce parent-country industrial relations practices aimed at
reducing industrial unrest or increasing productivity
6. Characteristics of the Home Product Market: An important factor is the extent of the home Notes
product market. If domestic sales are large relative to overseas operations, it is more likely that
overseas operations will be regarded by the parent firm as an extension of domestic operations. Lack
of a large home market is a strong incentive to adapt to hostcountry institutions and norms. Since
the implementation of the Single European Market in 1993, there has been growth in large
European-scale companies that centralise management organisation and strategic decision-making.
7. Management Attitudes towards Unions: Knowledge of management attitudes concerning unions
may provide a more complete explanation of multinational industrial relations behaviour than could
be obtained by relying solely on a rational economic model. Thus, management attitudes should also
be considered in any explanation of managerial behaviour along with such factors as market forces
and strategic choices. This is of particular relevance to U.S. firms, since union avoidance appears to
be deeply rooted in the value systems of American managers. Worldwide trade union membership
has fallen over the past decade due to economic factors such as reduced public sector employment,
reduced employment in manufacturing industries as a share in total employment, and increased
competition. It is also associated with decentralisation of industrial relations to business unit level,
changes in governance, and legislative changes. Example: The sharpest drop in union density (almost
36% over the past decade) has been in central and eastern Europe, and may be explained by political
and economic changes associated with the dissolution of the Soviet bloc and the end of compulsory
union membership. Union membership decline is also linked to the introduction of new forms of
work organisation, globalisation of production, and changes in workforce structure. Industrial
disputes is the another key issue in international industrial relations. Strike-proneness was measured
via three variables – strike frequency, strike size, and strike duration. There was no difference across
the two groups of firms with regard to strike frequency, but multinational subsidiaries did
experience larger and longer strikes than local firms. This difference indicates that foreign-owned
firms may be under less financial pressure to settle a strike quickly than local firms – possibly
because they can switch production out of the country. International industrial relations are
influenced by a broad range of factors. General statements cannot be applied to the organisation of
the industrial relations function within MNCs. Rather, different MNCs adopt different industrial
relations strategies in relation to the environmental factors peculiar to each firm.
10.3.1 Regional Integration Regional integration is a process in which states enter into a regional
agreement in order to enhance regional cooperation through regional institutions and rules.
Regional integration is association of states based upon location in a given geographical area, for the
safeguarding or promotion of the participants, an association whose terms are fixed by a treaty or
other arrangements. It is a worldwide phenomenon of territorial systems that increase the
interactions between their components and create new forms of organisation, co-existing with
traditional forms of state-led organisation at the national level. It is the joining of individual states
within a region into a larger whole. The degree of integration depends upon the willingness and
commitment of independent sovereign states to share their sovereignty. Its objectives could range
from economic to political although it has become a political economy initiative where commercial
purposes are the means to achieve broader socio-political and security objectives. Regional
integration have often focused on removing barriers to free trade in the region, increasing the free
movement of people, labour, goods, and capital across national borders, reducing the possibility of
regional armed conflict. Regional integration initiatives should fulfil following important functions: 1.
the strengthening of trade integration in the region 2. the creation of an appropriate enabling
environment for private sector development 3. the development of infrastructure programmes in
support of economic growth and regional integration 4. the development of strong public sector
institutions and good governance 5. the reduction of social exclusion and the development of an
inclusive civil society 6. contribution to peace and security in the region 7. the building of
environment programmes at the regional level 8. The strengthening of the region’s interaction with
other regions of the world European Union (EU): Regional integration such as the development of
the European Union (EU) has brought significant implications for international industrial relations. In
the Treaty of 190 LOVELY PROFESSIONAL UNIVERSITY Global HRM Notes Rome (1957), some
consideration was given to social policy issues related to the creation of the European Community. In
the EU, the terms social policy or social dimension, are used to cover a number of issues including
labour law and working conditions, aspects of employment and vocational training, and social
security. The Social Charter of the Council of Europe came into effect in 1965. In 1987, the major
objective of the implementation of the Single European Act was to establish the Single European
Market (SEM) on December 31, 1992, in order to enhance the free movement of goods, money, and
people within the SEM. The social dimension aims to achieve a large labour market by eliminating
the barriers that restrict the freedom of movement and the right of domicile within the SEM. The
European Community Charter of the Fundamental Social Rights of Workers (often referred to simply
as the Social Charter) was introduced in 1989, and has guided the development of social policy in the
1990s (EC, 1990). The Social Chapter in the Treaty of Amsterdam opens with a general statement of
objectives. It then sets out the objectives for the E.U.: to support and complement the activities of
the Member States in a number of listed areas. These include improvement of working conditions
and of the working environment in the interests of workers, integration of persons excluded from
the labour market, and equality of opportunity, and at work, between men and women. However,
the Treaty excludes matters of pay, the right of association, and the right to strike or to lock out. The
European Commission department responsible for social policy is known as DirectorateGeneral V
(often abbreviated to ‘DG V’).
North American Free Trade Agreement (NAFTA): NAFTA is an agreement which involves the
formation of a free trade zone between the United States, Canada and Mexico. The Canada– United
States Free Trade Agreement went into effect on January 1989, and a draft accord to create NAFTA,
which brought Mexico into the trading bloc, was announced in August 1992. The NAFTA agreement
was signed by the governments of the United States, Mexico, and Canada in December 1992, coming
into force in January 1994. NAFTA differs from the Single European Market in that it is a free trade
zone and not a common market. NAFTA deals only with the flow of goods, services, and investments
among the three trading partners. It does not address labour mobility or other common policies of
the SEM. It has introduced new institutions to process complaints, violations of labour laws, and
committed each of the three nations to introduce a set of 11 labour rights principles. There are
significant HR implications in NAFTA that must be considered by HR managers in North American
firms. While NAFTA does not include workplace laws and their enforcement, the country with the
least restrictive workplace laws will have a competitive advantage. Organised labour in the United
States and Canada responded to the passage of NAFTA with substantial opposition, based on fear of
job losses due to the transfer of production to Mexico to take advantage of lower wage rates and tax
enforcement of social and labour legislation. In the case of NAFTA, jobs are able to cross borders, but
workers are not. There has been – a general lack of coordination between the labour organisations
of the NAFTA countries. Example: In telecommunications, trucking, and electrical industries, NAFTA
has stimulated some strategic cross-border collaboration among individual trade unions and their
allies. The EU and NAFTA provide examples of regional integration, which present many issues for
international industrial relations. As regional integration, and interregional integration, develops in
other parts of the world, issues will continue to emerge for international industrial relations.